Building owners often prefer to minimize their risks of loss due to fire and other hazards by obtaining insurance to indemnify them against the cost of reconstructing the insured property. From the perspective of the insurer, the ability to accurately estimate building reconstruction costs is essential for setting an appropriate premium for such a policy.
Unfortunately, existing methods for estimating reconstruction costs are complex and often inaccurate. The traditional method for estimating reconstruction cost attempts to calculate the total cost of labor and materials necessary to reconstruct an existing property, and then adds an assumed contractor profit margin. But to be accurate this method requires a large amount of information and requires that a substantial number of assumptions be made which are not likely to be especially accurate, particularly as the prices for labor, materials and contracting services vary with market conditions.
Attempts have been made to simplify the methodology for estimating construction costs. U.S. Pat. No. 5,546,564 to Horie proposes a construction cost estimating system in which a database of completed construction projects is maintained with cost data for each project and other data for sorting the projects for relevance to a particular proposed new project. Essentially, Horie attempts to select a subset of the most relevant projects (a “small mother group”) and then derive an overall cost per unit area of the new project by weighting the costs per unit area of the projects in the small mother group according to their presumed relevance.
This technique, however, is subject to substantial inaccuracy due to the effects of its simplifying assumptions. For example, it is not valid to assume that a single cost per unit area may be estimated accurately for a given construction project, since each project usually involves the construction of a number of different types of structures and areas with widely different per-unit-area costs of construction. Moreover, there are a great many cost influences that will vary from project to project, thus making it impractical to assess the relevance of any given project to another.
The present invention successfully addresses the shortcomings of existing methods and proposals to provide highly accurate and reliable systems and methodologies for estimating the reconstruction cost of an existing building.